Australians from all walks of life should brace for a serious tightening of federal government expenditure, Joe Hockey has warned, but it appears older Australians will be asked to do some of the heaviest lifting in a budget repair task being pitched as a moral and economic necessity.

In a key note speech just weeks before his first budget, the Treasurer has railed against the unsustainability of the age pension, the growing cost of aged care services, and the drain on the budget from the Pharmaceutical Benefits Scheme, which he noted was weighed down with 80 per cent of its costs coming from concessional usage.

"The problem we have is that the volume of demand for these programs is outstripping the capacity of taxpayers to fund them," Mr Hockey warned.

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"Between 2010 and 2050 the percentage of people of working age supporting those over the age of 65 in Australia will almost halve.

"So the policies must be changed, either now or more dramatically in the future."

Illustration: Ron Tandberg

Announcing that the long-withheld Commission of Audit report would finally be released next week, the Treasurer said the budget would draw some recommendations from the report but the government would either delay or reject others.

He said every sector of the community would be affected including households, corporates, and the public sector.

In an effort to drive the budget back into the black, he said it would contain significant across-the-board spending cuts and would also feature wider use of means testing for welfare benefits and the more extensive use of co-payments for services until now free of such user charges.

Illustration: Cathy Wilcox

That appeared to vindicate reports that a new $6 fee for GP visits to be met by the patient could be in the the offing as well as possible payments for hospital services, and other government provided benefits.

Mr Hockey said the charges would "encourage moderation in demand for services", noting that "nothing is free - someone always pays".

Mr Hockey is expected to outline a slightly faster return to surplus than has previously been foreshadowed with an accompanying graph in his speech showing the government's balance sheet could achieve balance in 2018-19 on a path towards a solid surplus of 1 per cent of GDP by 2023-24.

The speech, a keynote address in Sydney on Wednesday evening, was designed to frame the public debate before the budget.

Citing what he dubbed "a strong economic and moral imperative to change course", Mr Hockey said it was only by getting back to surplus that the country could stop borrowing money - which this year alone meant an interest bill of $12 billion or "about the same as we spend on higher education".

Having previously called for an end to the "age of entitlement", Mr Hockey spent some time in his speech focusing on the expanding cost of the age pension, arguing that as the population ages it places an increasing burden on other people.

"Of Australians over the age of 65, four out of five receive a full or part pension," he said.

"If we also take into account the concessionary health card, then only 14 per cent of older Australians receive no government payments.

"Despite spending billions of dollars in taxation benefits for superannuation, by 2050, the ratio of Australians receiving a full or part pension will still be around four out of five.

He said aged care was "now the eighth largest category of spending".

"We spend more on aged care than we do on higher education or child care.

"And the Pharmaceutical Benefits Scheme is the 10th largest category of spending.

"Nearly 80 per cent of the scheme’s expenditure is attributable to concessional recipients."

Asked whether he was committed to maintaining Labor's Gonski school funding reforms in the May budget, which detailed funding for six years, Mr Hockey said he was not.

“Our commitment was to fund [the Gonski reforms] four years and we will stick to it,'' he said.

Mr Hockey also ruled out an increase in the GST ''during this term of government''.

"Clearly there is an imbalance in the Australian taxation system, but we will take that to the next election,'' he said.

Mr Hockey revealed the Commission of Audit had recommended that real spending growth be capped at no more than 1.75 per cent if the budget was to have any chance of returning to a long-term goal of achieveing a surplus equal to 1 per cent of GDP.

Labor's spending growth target was a maximum 2 per cent but it never achieved that after the stimulus splurge needed to avoid a GFC-led recession.

'Broken promises'

The opposition immediately criticised the Hockey speech as an alibi for broken promises.

"The Abbott government created their own budget emergency, and now they are telling pensioners to pay for it," said Opposition Leader Bill Shorten.

"If the Prime Minister is so desperate to cut, he should leave pensioners alone and start with his extravagant paid parental leave scheme.

"The Prime Minister promised ‘no change to pensions’ and he can’t talk his way around that, try as he might."

Paid Parental Leave

Bank of America Merrill Lynch chief economist Saul Eslake also questioned the merits of the paid parental leave scheme, saying he was not convinced by the Coalition's arguments for its plan .

"There's a lot of evidence to suggest that the single biggest factor containing female participation, especially by women who are of child-bearing and rearing age, is the cost of childcare and the government isn't proposing to do anything new about that," Mr Eslake told ABC TV's 7.30 on Wednesday night.

"All it is proposing is a vastly expanded version of the Howard government's baby bonus funded by what amounts to a redistribution of income from big businesses to small ones.

''No wonder, as the Treasurer said tonight, it's popular with small and medium businesses because in effect it's taking money from large corporations and giving it to them. But in my view, it will do next to nothing to lift either participation of women in the workforce or productivity of those who are in the workforce."

‘‘Countries that have triple-A credit ratings are not in the midst of a budget crisis,’’ Mr Burke told ABC Radio.

‘‘None of the information that Joe Hockey’s referring to there is new. They’re wanting to pretend that they’ve just realised this through the commission of audit.’’

Mr Burke said the Coalition's election pledge of no changes to pensions was ''on the chopping block."

''There is no doubt they are gearing up to take the axe to pensions, to break that election promise," Mr Burke said.

Mr Burke said Mr Hockey's rhetoric on reining in spending was at odds with the Coalition's more generous paid parental leave scheme.

"There is just no credibility in the Treasurer standing up and talking about the age of entitlement being over, when at the same time, they're introducing a scheme which is all about providing more for those who have more, when they're wanting to actually make cuts to pensions,'' he said.

Mr Burke said under the Coalition's proposed scheme, a shop assistant earning $18,000 a year would get $9000, while "if you're a millionaire, you get $75,000".

Interviewed on ABC radio on Thursday, Mr Hockey rejected the suggestion there was any conflict between the Coalition's parental leave plan and its drive to make government leaner.

''I do not accept that at all. We need every generation to get to work. For younger Australians, you're either going to have to earn or learn. For middle-income Australians, middle-aged Australians, we need you in work. For older Australians we want you to have the opportunity to work," he said.

613 comments

I get sick and tired of the conservatives parroting that nothing is free. We all know that there must be an allocation of resources to ensure that all the needs of the society are met. Australia has the resources to pay for all the needs necessary to maintain a modern and compassionate society with no sector excluded from the benefits of our nation’s bounty. What the conservatives are saying when they keep parroting that nothing is free is that they want to ensure that those who have plenty can keep it all. What the whole upcoming Hockey budget will be constructed around will be ensuring that no one in a position where they don’t need government assistance will have to fork out any more than the very barest minimum and that those who have the where with all to ensure they pay practically nothing towards this equalising of status can do so. The sting in this budget will once again be on the middle income earners of the country, the Howard aspirants, the ones most conned by the Howard and now Abbott’s media driven choice rhetoric. Choice in Australian like elsewhere has always gone to those with the most dollars, the more dollars the wider the choice and middle income earners have only ever had superficial choice, just enough to keep them voting for the Liberals who are doing far more for the top end of town than they have ever done for their pasted on aspirants. This is why I don’t what this government to stay in office one second longer than they have to and we can once again get on our way towards a truly compassionate society with better priorities and a much great equality for all Australians.

Commenter

RTP

Location

Sawtell

Date and time

April 24, 2014, 7:00AM

I'm sick and tired of the lefties thinking that everything can be put on the country's credit card.....thanks to Rudd/Gillard/Rudd, we've been burdened by record debt, despite their 'come hell or high water' promise of a surplus...yeah right..........can anyone remember the last time a Federal ALP Govt actually delivered a surplus???? Anyone?????.........Anyone????

Commenter

MTK

Location

Port Melbourne

Date and time

April 24, 2014, 7:49AM

Good strong speech by Joe, some of those ageing projections are quite sobering. There will need to be changes to pensions over the longer term.

One area there is some room to move is superannuation - the best way to help pensioners is to help them become self sufficient. Could we be seeing superannuation head towards 15% or beyond ?

It was a little odd that Hockey's speech was on the same day as the F-35 announcement, but then it makes you realise that the entire $12 billion cost of the multi year program is equivalent to one year's worth of debt-driven interest payments.

Commenter

Hacka

Location

Canberra

Date and time

April 24, 2014, 7:53AM

Even the Libs backers must be starting to wonder what's happening under Sir Tone. Oh well, personally we saw it coming long ago and for the past ten years we've concentrated on clearing the decks. What is about to happen is a consequence of a series of inept toxic short term governments who got their pals to give advice on how to run this country rather than retain cool heads who understood that nation building is generational. We are about to reap the whirlwind. With Sir Tone trying to sell off the remaining scraps of this country to the Chinese Government or anyone waving dollar bills in his direction, he has committed an act of absolute lunacy, with the final sale of assets goes any foundation for potential nation rebuilding, unimaginable, yet there it is, this mumbllng fool destroying anything that in his ideological path. PS Sir Tone: Stop flooding this country with anyone who can stand vertically and breathe in a demented effort to artificially stimulate our choking cities, your simply writing the end game.

Commenter

Neil (not on radio) Mitchell

Location

Melbourne

Date and time

April 24, 2014, 8:10AM

It's confusing when politicians parrot the "nothing is free" line when they get all these free perks!

Commenter

Jill

Date and time

April 24, 2014, 8:16AM

Yup, nothing is freeUnless you're a multi billionairre mining entrepreneur who is skimming gazillions from the public purse, or a middle class family accessing a lucrative paid parental leave schemeWhat budget crisis?

Commenter

SeanC

Location

Richmond

Date and time

April 24, 2014, 8:17AM

MTK

So the answer is to punish the lowest paid in the community and reward well off mums (on more than double the average wage) with truck loads of taxpayers cash to stay at home with children. It's not about surplus MTK, it's about rewarding Liberal voters.

Commenter

Coalition = Middle Class Welfare

Location

Outer burbs

Date and time

April 24, 2014, 8:17AM

Obviously RTP is pretty ignorant of the tax rates in Australia, if you earn below 18K you don't pay anything, if you earn above 180K you pay 54K of it in direct tax and pay 45c on every dollar earnt above 180K.

I realise most 'progressives' would prefer that these greedy people didn't get anything more than they get themselves, unfortunately its difficult for any government to give everyone absolutely everything they want.

Commenter

SteveH.

Date and time

April 24, 2014, 8:20AM

MTK.....read the consitution....'debt' is just an accounting construct......the gov does not have to take from the poor to give to the rich if it doesn't want to.

The fed gov can put as much sovereign money into the community as it sees fit.."for the good, health and welfare of ALL australians"...the 'debt' label is just a way for those in power to manipulate the vulnerable ignorant...

Commenter

Bosss

Date and time

April 24, 2014, 8:22AM

Hacka,Good Morning.

What! Not the first to post today ?

If the aged pension is such a concern, why doesn't Joe have a Work for the Pension Policy?

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